When a loved one moves into residential aged care, one of the biggest financial decisions families face is how to pay the accommodation cost. In Australia, you generally have two options: a Refundable Accommodation Deposit (RAD) or a Daily Accommodation Payment (DAP) — or a combination of both. Here's what you need to know.
What Is a RAD?
A Refundable Accommodation Deposit (RAD) is a lump sum payment made to the aged care facility. Think of it like a bond or deposit — the full amount is refunded when the resident leaves the facility (or to the estate after passing), less any agreed deductions.
Key features of a RAD:
- Paid as a lump sum (can be hundreds of thousands of dollars)
- Fully refundable when the resident leaves or passes away
- No ongoing daily accommodation charge if paid in full
- The facility must refund within 14 days of departure
- The facility can use the funds but must guarantee the refund
What Is a DAP?
A Daily Accommodation Payment (DAP) is a rental-style payment where you pay a daily amount instead of a lump sum. The DAP is calculated based on the equivalent RAD amount using a government-set interest rate (the Maximum Permissible Interest Rate, or MPIR).
Key features of a DAP:
- Paid daily (or accrued and paid periodically)
- No large upfront cost
- Not refundable — it's an ongoing expense
- Calculated as: RAD amount × MPIR ÷ 365
- The MPIR changes quarterly (currently around 8.36% as of early 2025)
A Practical Example
Let's say the agreed room price (RAD) is $550,000 and the current MPIR is 8.36%:
- Option A — Full RAD: Pay $550,000 upfront. No daily accommodation charge. Full amount refunded on departure.
- Option B — Full DAP: Pay $550,000 × 8.36% ÷ 365 = approximately $126 per day ($46,000+ per year). Nothing refundable.
- Option C — Combination: Pay $300,000 as partial RAD, then DAP on the remaining $250,000 = approximately $57 per day.
Which Option Is Better?
There's no one-size-fits-all answer. The right choice depends on your family's specific circumstances:
RAD might be better if:
- You have the funds available (e.g., from selling the family home)
- You want to preserve capital — the RAD is refunded in full
- You'd rather not have an ongoing daily cost eating into income
- The MPIR is high, making the DAP expensive relative to what you'd earn on the lump sum elsewhere
DAP might be better if:
- You don't want to (or can't) liquidate assets to fund a large lump sum
- Your investments are earning a return higher than the MPIR
- You want to keep the family home (perhaps renting it out for income)
- There are Centrelink/Age Pension implications of holding versus paying the lump sum
Impact on the Age Pension
This is where it gets complex. A RAD is an exempt asset for Age Pension purposes — meaning paying a $550,000 RAD could actually increase your pension entitlement. However, if you keep that $550,000 invested and pay the DAP instead, those investments count as assessable assets and may reduce your pension.
The interaction between aged care payments, the Age Pension, and your broader financial position requires careful modelling. A difference of tens of thousands of dollars per year in pension entitlements can swing the decision significantly.
Other Factors to Consider
- Length of stay: Average stays in residential aged care are 2-3 years. A longer stay makes the DAP more expensive overall.
- Opportunity cost: What could you earn on the lump sum if you didn't pay the RAD?
- Family home: Is the home being sold, rented, or retained? Each has different Centrelink and tax implications.
- Means-tested care fee: Your accommodation choice can affect the daily means-tested fee.
- Estate planning: The RAD is refundable to the estate, while DAP payments are gone forever.
Get Expert Aged Care Financial Advice
Aged care financial decisions are among the most complex in personal finance — they involve super, pensions, Centrelink, tax, property, and family dynamics all at once. Getting the right advice upfront can save families tens of thousands of dollars and provide clarity during an emotional time.
At LifeScope Wealth, we specialise in helping families navigate aged care finances with confidence. Book a free consultation to discuss your family's situation.
Disclaimer: This article provides general information only and does not constitute personal financial advice. Aged care rules and rates change frequently. Please consult a qualified financial adviser before making decisions about aged care payments.